Oregon's Drug Price Bill is Hard to Swallow

Sally Pipes
, ContributorI cover health policy as President of the Pacific Research InstituteOpinions expressed by Forbes Contributors are their own.

President Donald Trump is not the only politician saying he is going to work to get drug prices down. Oregon lawmakers are already patting themselves on the back for tackling drug prices. Rep. Mitch Greenlick (D-Portland) says the measure, Oregon House Bill 2387, could be a model for national reform. "If we can actually get it done," he recently explained, "it will show the country how to get those costs down."

Let's hope he's wrong. The reform he's supporting is nothing but an insurance industry giveaway. The bill forces drug firms to pay steep rebates to coverage providers on certain advanced medicines. Insurers, though, would be under no obligation to pass those savings on to consumers.

If the bill passes, Oregonians wouldn't find it any easier to access the medicines they need. And since the legislation would dis-incentivize funding for future pharmaceutical research, it would ultimately deprive patients of medical innovation.

Introduced in February, HB 2387 requires pharmaceutical firms to reimburse insurers for any "excess costs" associated with a drug. This is a creative way of dictating what drug companies can charge for their medicines.

Indeed, the bill defines "excess costs" as the difference between the "average wholesale price" of a drug and something called the "foreign price cap" -- what the drug typically sells for in other countries.

Let's say an advanced cancer drug has an average wholesale price of $15,000 per treatment -- and the foreign price cap is $4,000. In that case, the insurer gets an $11,000 rebate.

The other way the bill would calculate "excess cost" is the difference between the maximum co-pay for a drug and a health plan's maximum out-of-pocket costs. If the co-pay on a particular medicine was $250, for instance, and the out-of-pocket maximum was $4,000, the drug company would refund $3,750 to the insurer.